Charities feel pinch of Nadel 'clawback'

Saturday

Jun 29, 2013 at 11:10 PM

By JEREMY WALLACEH-T Political Writer

It's been more than four years since Sarasota hedge fund manager Art Nadel disappeared after his Ponzi scheme collapsed, more than two years since he was sentenced for crimes related to the scheme, and more than a year since he died in prison.

But many of the local charitable groups that received money from Nadel are still trying to recover from unwittingly taking the tainted contributions.

Forced to repay much of the money by a court receiver working to recover as much as possible for the victims of Nadel's scheme, groups such as Jewish Family & Children's Service of Sarasota-Manatee have had to trim services to the needy to comply.

JFCS is paying back $140,000 of the $227,000 it received from Nadel over three years. Another organization, Girls Inc., is paying back $100,000 of the $360,000 it received from Nadel from 2004 to 2008 over the next four years.

In the future, such "clawbacks" of charitable donations will be barred, under the terms of a new law that takes effect Monday.

A bill passed by the Legislature in the spring and recently signed by Gov. Rick Scott gives charities new protection to prevent creditors from recouping donations the groups couldn't have known were from illegal sources.

State Sen. Nancy Detert, R-Venice, said she pursued the legislation because of the fallout area charities experienced thanks to the association with Nadel.

JFCS initially welcomed the money it got from Nadel, who was deeply involved in giving to area charities. The group thought the money would boost its aid to struggling families.

JFCS had no idea the money stemmed from fraud.

"If we had known, we never would have taken it," said Rose Chapman, chief executive and president of JFCS.

For the next three years, money that would be going to help families on the cusp of homelessness and other services will be going to creditors and lawyers involved in the Nadel case.

In all, at least $1.2 million that Nadel gave out to charities in the region, from the Diocese of Venice to the Sarasota Opera, is subject to "clawback" proceedings.

Nadel died in a North Carolina prison in April 2012 after being sentenced to 14 years following the collapse of six hedge funds he ran in Sarasota in 2009.

The meltdown resulted in $168 million in losses for his investors.

In its annual report, Girls Inc. reported it reached a settlement to return $100,000 that would otherwise be serving the nonprofit's mission of providing educational programs for thousands of girls, particularly in high-risk, underserved areas.

The Sarasota Opera is paying back about $514,000 over three years as part of its settlement deal. That's second only to the $521,000 the Diocese of Venice is returning.

"That is a big chunk of money," said Richard Russell, executive director of Sarasota Opera. "It wasn't something we could easily absorb."

Russell said the region's economic slowdown and the clawbacks made for a double whammy for nonprofits.

Billy Atwell, director of communications for the Diocese of Venice, said the difficulty with the clawbacks is that typically, donations are immediately spent on programs for the poor.

Giving donations back diverts money from the needy.

"Where it comes from is the poor," Atwell said. "That is who we serve."

State Rep. Doug Holder, R-Osprey, who sponsored the bill in the House, said that while the changes in the law won't help those groups grappling with the Nadel clawbacks, it will have an impact in the future.

"We needed to put something in state law to make sure this doesn't happen again," Holder said.

Holder said Florida's law will now mirror what happens in more than 40 other states. Florida was one of the few that did not have protections for charitible donations collected in good faith.

Detert, who sought but failed to get the legislation passed last year, said there are protections in the bill to make sure scammers cannot create fake charities to unload their money and protect it from clawbacks.

If a donor is a board member or had some role in creating the charity, the donations would still be subject to clawbacks, she said.

Jeremy Wallace can be reached at 361-4966 or jeremy.wallace @heraldtribune.com.

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